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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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At the end of Year 1, Herkimer & Co. sells two laptops for $1,800 each. Based on the information in RE11-6 in Year 1, prepare the journal entries to record the purchase of the laptops, the depreciation on the laptops, and the sale of the laptops.

To determine

Prepare necessary journal entries to record the purchase, depreciation, and the sale of the laptops of Company H.

Explanation

Depreciation expense: Depreciation expense is a non-cash expense, which is recorded on the income statement reflecting the consumption of economic benefits of long-term asset on account of its wear and tear or obsolesces.

Activity method:  In this method of depreciation, the amount of depreciation is charged based on the units of production or hours worked each year. When the usefulness of an asset is related to the production cost of a unit, this method is more appropriate to use.

Prepare necessary journal entries to record the purchase, depreciation, and the sale of the laptops of Company H as follows:

Acquisition of laptops:

DateAccount Title & ExplanationDebit ($)Credit($)
Laptops (1)16,100 
    Cash  16,100
(To record the purchase of laptops)

Table (1)

  • Laptops are asset and it increases the value of assets by $16,100. Therefore, debit the laptops account with $16,100.
  • Cash is an asset, and it decreases the value of assets by $16,100. Therefore, credit cash account with $16,100.

Depreciation expense of laptop:

DateAccount Title & ExplanationDebit ($)Credit($)
 Depreciation expense (3)4,200 
     Accumulated depreciation-Laptops 4,200
 (To record the depreciation expense incurred)

Table (2)

  • Depreciation expense is a component of stockholder’s equity. It decreases the value of stockholder’s equity by $4,200. Therefore, debit depreciation expense account with $4,200.
  • Accumulated depreciation is a contra asset, and it decreases the value of asset by $4,200. Therefore, credit accumulated depreciation account with $4,200.

Disposal of laptop:

DateAccount Title & ExplanationDebit ($)Credit($)
Cash ($1,800×2 laptop)3,600 
 Accumulated depreciation-Laptop (4)1,000 
     Laptop ($2,300×2 laptop) 4,600
 (To record the disposal of laptop)

Table (3)

  • Cash is an asset and it is increased by $3,600

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